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California Selects Buyer For 11 State Properties

San Francisco City HallSan Francisco City Hall. (Justin Sullivan/Getty Images)

SACRAMENTO (AP) — The state announced Monday it is selling 24 government office buildings — including the Ronald Reagan State Building in Los Angeles and the San Francisco Civic Center — to a group of private investors for $2.3 billion.

Ron Diedrich, acting director of the California Department of General Services, announced it selected the offer from California First LLC, a partnership led by a Texas real estate firm and an Orange County private equity firm.

About $1 billion of the sale will be used to pay off bonds on the buildings, leaving more than $1.2 billion to go into the state’s general fund.

“After an extensive review of more than 300 bids that were received, I have determined that this offer presents the best value for the state,” Diedrich said in a statement. “This sale will allow us to bring in desperately needed revenues and free the state from the ongoing costs and risks of owning real estate.”

Gov. Arnold Schwarzenegger and lawmakers included the sale as part of the state budget last week. The Republican governor said California had received solid offers to sell the 24 buildings on 11 parcels and then rent that space back for 20 years at market rates.

It’s unclear how the current deal will work out for taxpayers over the long run, but there have been concerns.

The Associated Press reported earlier this year that the deal would end up costing the state $5.2 billion in rent over 20 years, perhaps saddling taxpayers with costs beyond whatever the state would net from the sale. Three of the properties already are paid off, while four others were expected to be paid off in the next five years.

The nonpartisan legislative analyst’s office also warned that selling the properties then renting back the space could cost the state an additional $1.5 billion, based on a 35-year projection. And a study by Beacon Economics reached a similar conclusion by looking at a 30-year period.

That study was commissioned by the Service Employees International Union Local 1000, the largest state employee union.

The Legislature will have 30 days to review the sale but cannot make any changes because of a provision in the budget package passed last year that authorized the sale.

Legislation introduced this year that would have given oversight of the matter to lawmakers was killed in committee.

The state said it received more than 300 offers to purchase the buildings back in April. A second round of offers came in May, 11 of which exceeded the state’s $2 billion estimate.

Some of those buildings being sold include the attorney general’s office and the California Emergency Management Agency in Sacramento, the Elihu M. Harris building in Oakland, and the Judge Joseph A. Rattigan building in Santa Rosa. The portfolio includes 7.3 million square feet of office space, which amounts to about 2½ times the Empire State Building’s floor space.

Diedrich said the department recommended California First LLC based on the buyer’s financial capabilities and the terms of its offer. The consortium is led by Hines, a privately owned real estate firm headquartered in Houston, and Antarctic Capital Real Estate LLC an international private equity firm.

Antarctic Capital Real Estate was listed as a venture between California real estate veteran Rich Mayor of Spyglass Realty Partners and Chandra Patel of Antarctica Capital, which is headquartered in Irvine.

“California First LLC is pleased and proud to have been selected to be the steward of a number of the state’s assets,” said Colin Shepherd, Hines senior vice president, in a written statement. “Our purchase price represents fair market value and exceeds the state’s initial anticipation of net proceeds.”

The investors will put up 40 percent of the purchase price and the remainder will be financed through loans.

Mayor, who led the offer, said the group will work with state employee unions so workers can keep their jobs as the state transfers ownership to a private owner. He said the state has the ability to buy back the buildings at any time.

At least one competing bidder is asking lawmakers to reconsider the deal.

John Stoecker, financial adviser to the California Municipal Finance Authority, a joint powers authority created to finance economic development, said his group’s bid would have issued tax-exempt bonds to finance the deal and allowed the properties to revert back to the state after a 20-year lease had expired.

He said his group’s offer would have also generated hundreds of millions of dollars more for the state than California First.

“We were just surprised that the state chose to go in this direction when you compare the authority’s bid, which kept buildings in the public domain,” Stoecker said. “We’re just confused why the state would let it go into private hands.”

Shades of Jerry Brown the First. Back in his first term, much of the States Real Estate assets were sold off to pay for a growing state government. Later, these assets had to be replaced (as the current crow will) at much higher prices due to inflation and diminished property inventory. So, we have learned little in 30 years. We elect leaders who are happy to increase state spending, sell state assets to cover some of the cost and get re-elected by us. Walt Kelly was correct when he said ‘we have met the enemy and he is us’

So now we will turn around & has txpayers we will pay rent for these idiots to release the buildings. This is what you get when our Fearless Leaders get creative instead of relying on living within our means approach! This budget is a sham & 3 months late. Most of it depends on getting funds & picking it off that tree in Fairyland where all these billions grown!!!

Something smells rotten about this deal. Why would taxpayers want to sell buildings nearly paid for so that they can rent them back for 4xs the amount they sold them for? Is it because we are now paying on the principal and banks have already made their money on these projects? What is shady SEIU doing in this mix? And finally the line “Legislation introduced this year that would have given oversight of the matter to lawmakers was killed in committee” ought to really make you pucker. Someone is laughing all the way to the bank and it isn”t the taxpayers. Can’t you just hear them now “Sucker, ha, ha, ha, ha.”